3 states' attorneys general seek to enforce settlement with four major companies

ALBANY, N.Y. // The attorneys general for three states have told four major insurance companies that they must end special commissions to agents and brokers as agreed in an earlier settlement.

The announcement yesterday involved ACE Group Holdings Inc. of Bermuda; American International Group Inc. of New York; The St. Paul Travelers Companies Inc. of St. Paul, Minn.; and Zurich American Insurance Co. Inc., a subsidiary of Swiss insurance giant Zurich Financial Services.

The four companies reached an agreement a year ago as part of a bid-rigging investigation. That deal requires the companies to stop paying contingent commissions - which are special payments above agents and brokers' regular commissions - when 65 percent of an insurance line is sold by companies that don't pay the commissions.

In letters sent yesterday, the companies were told that this "tipping point" has been reached in automobile, homeowners and several other insurance products.

New York Attorney General Eliot Spitzer made the announcement with his partners in the case, Connecticut Attorney General Richard Blumenthal and Illinois Attorney General Lisa Madigan.

The companies must discontinue the commissions Jan. 1, as they already have for excess casualty insurance, Spitzer's office said.

The settlement came as part of a multiyear investigation into bid-rigging and price-fixing in the sale of corporate property and casualty insurance.

Spitzer argued that the contingent commissions, paid to brokers and agents to steer business to the companies, were the equivalent of kickbacks. This, he said, unfairly raised the price to insurance clients.

Robert Rusbuldt, chief executive officer of the Independent Insurance Agents and Brokers of America, in Alexandria, Va., said the announcement was expected but still disturbing.

He said the decision would reduce the incentive commissions for agents who specialize in auto, homeowners and other consumer policies.

"All of the illegal activities involved big, commercial lines," Rusbuldt said. "Here you have personal lines agencies - auto and homeowners - being penalized for the sins of others."

He also argued that commissions to encourage sales were not illegal and that the association supported lawsuits and legislative action to clarify the issue.

In January, Marsh & McLennan Companies Inc., the nation's largest insurance brokerage, agreed to pay $850 million in restitution to end Spitzer's investigation into bid-rigging and price-fixing. The settlement became a model for other insurance company settlements. Marsh & McLennan also agreed to stop the practice of contingent commissions.

In September, eight former executives of Marsh & McLennan were charged with colluding with brokers and executives at major insurance companies to arrange noncompetitive bids for corporate customers.

The indictments alleged bid rigging from November 1998 to September 2004 with executives at AIG, ACE USA, Zurich American and other insurance companies.

Several executives have entered guilty pleas to criminal charges stemming from the investigation, and cases against others are pending.

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